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Differential Voting

Rights
GROUP MEMBERS:1) PRADEEP JADHAV
2) RAHUL SINGH
3) PRANITA KUMARI
4) NATARAJ V.
5) NAMAN SANGARI

COMPANY PROFILE
Ashok Leylands shares are currently listed on the Bombay
Stock Exchange & National Stock Exchange of India
It is the 2nd largest commercial vehicle manufacturer in India
4th largest manufacturer of buses in the world and 16th largest
manufacturer of trucks globally

Introduction
DVRs means shares that give the holder differential rights as to
voting (either more or less voting right) as against the Ordinary
shareholders of the company.
Trading similar to Equity Shares.
The issue of DVRs can result in two types of shares
Shares that have superior voting rights.
Shares that have inferior voting rights but offer higher
dividends or are offered at a discount.

Indian Scenario
The Issue of DVRs in India was allowed only since 2001. There was an
amendment made to Companies Act 1956 through an amendment in provisions
of Section 86. This Section stated that:
The share capital of a company limited by shares shall be of two kinds only,
namely:
Equity share capital
With voting rights; or
With differential rights as to dividend, voting or otherwise in accordance with such rules
and subject to such conditions as may be prescribed .

Preference share capital

Conditions for Eligibility


Every company limited by shares may issue shares with differential rights as to dividend,
voting or otherwise, if The company has distributable profits in terms of Section 205 of the Companies Act,
1956 for three financial years preceding the year in which it was decided to issue such
shares.
The company has not defaulted in filing annual accounts and annual returns for three
financial years immediately preceding the financial year in which it was decided to issue
such share.
The company has not failed to repay its deposits or interest thereon on due date or
redeem its debentures on due date or pay dividend.
The Articles of Association of the company authorizes the issue of shares with
differential voting rights.
The company has not been convicted of any offence arising under, Securities Exchange
Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Foreign
Exchange Management Act, 1999.

Changes made by SEBI


Lot of voices raised on the misuse of DVRs with
superior voting rights by the management to get
full control on the company to the deterrent of the
minority stakeholders.
SEBI prohibited issue of DVRs with superior rights
as to dividend or voting in 21 July,2009.

Difference between DVR shares and


ORDINARY shares
DVR SHARES

Provide few voting right


to shareholders
Rate of dividend is high
DVR shares are ideal for
small shareholders
Traded at a discount in
comparison with ordinary
shares

ORDINARY SHARES

Higher voting right to


shareholders
Rate of dividend is low in
comparison with DVR
shares
Ideal for large
shareholders
Traded at market price

Advantages of Issuing DVR


From
To raise
more
capital
Issuer Perspective
without diluting its
ownership structure.
A tool to avoid hostile
take over .
To fund large Project

Economic
as
From
Investor Benefit
Perspective

it is
issued at discount & also
for incremental dividend.
Gain from capital
appreciation in a
scenario where the price
difference between
ordinary and DVR shares
falls
Beneficial for the
passive investors

Tata Motors
In 2008, issued DVR shares.
It was the first company in India to issue DVR shares and
amongst the very few in Asia.
Issued at Rs 305 a share which was about 10% lower than
the issue of normal rights at Rs.340.
Will offer 5% of more dividends.
Gives an additional 10.3% discount.
But carry one-tenth the voting rights of ordinary shares. This
means 10 DVR shares = 1 ordinary share as far as voting
rights is concerned.

TATA MOTORS DVR

Pantaloons DVR issue


On July 25 2008 Pantaloon Retail India Limited (PRIL)
have approved a proposal to provide shareholders with
one bonus share with different voting and dividend rights
for every 10 shares held.
The new shares, called Class B shares, will get five per
cent more dividend than ordinary shares and will be
entitled to one vote for every 10 held.
The company issued bonus shares that were DVRs in
February 2009.

PANTALOON INDIAS DVRS

HISTORICAL TREND

GOOGLE
Google already had two classes of shares A
shares that have one vote per share and B shares
that have 10 votes per shares.
The founders own the bulk of the B shares and that
gives them the ability to issue new stock without
diluting their control over the company. The new
class of shares they have issued is called the C
class, and these shares wont have any voting
rights at all

Ford motor company


The shares available to the public are not normally
identified by a letter and have voting rights. There
are 1,114,618,895 total Ford shares outstanding.
However, included in that number are 70.9 million
class B shares owned by the Ford officers and
certain key officers. These shares have weighted
voting rights that allow them to control nearly 40%
of the votes

INTERNATIONAL DVRS

Key strengths of India stock market


The two main players of the India stock market - NSE and BSE have outshone
all the other exchanges and majority of the stocks are listed on these two
exchanges. The market participants are ever increasing, the volume of
securities has been growing, transaction costs are getting reduced, and there
is significant improvement in efficiency, transparency and safety.
Important elements of India stock market Investors
Issuers
Intermediaries
Regulators
If all these four elements are taken good care of from the onset, a stock market
can easily exhibit sound growth and perform exponentially.

The Road Ahead


1) Need to review the pre conditions (on the issue of DVR)& to add more
relevant and stricter qualifying norms on such issues.
2) Companies issuing DVRs need to clearly specify their intend for such an
issue in
the offer document.
3) A separate committee of Directors, consisting of only Independent
Directors should be involved .
4) The pricing mechanism used for arriving at the issue price of DVRs needs
to be
disclosed.
5) Ensure better investor awareness on DVRs.
6) The rights of the DVR holders need to be clearly defined.

Conclusion
For an investor, who wants to be in the companys
decision processes, DVR shares is not an
attractive proposition due to limited voting rights.
But if an investor isnt concerned much with voting
rights, then investing in the DVR would certainly
be an attractive option.

Thank You.